Extreme Early Retirement in Practice: How Two People Did It

This is a guest post from Robert Brokamp of The Motley Fool. Robert is a Certified Financial Planner and the adviser for The Motley Fool's Rule Your Retirement service. He also has a blog, Twittering thing, and other things that are supposed to be important but he often forgets about, such as hygiene. Robert contributes one new article to Get Rich Slowly every two weeks.

I regularly recommend that people spend time with a good retirement calculator to make sure they're saving enough to retire when and how they want, or — for people who are already retired — to make sure their money will last as long as they do.

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However, one consequence of using these calculators is that the result may indicate you need to have, like, an octillion dollars saved before you can retire. (Technical note: Octillion comes after septillion, which comes after sextillion, which comes after dinner and a movie, if you're lucky.) One reason for the high numbers: High assumptions for the income needed in retirement. I won't say “too-high” assumptions, because the amount you think you'll need in retirement is up to you, depending on your own plans for what you'll do in your golden years. But the less you need, the sooner you can retire.

Yet reducing your retirement income doesn't mean your retirement has to be boring. That's the message of Akaisha and Billy Kaderli, who retired 20 years ago when they were both 38. They've travelled the world on less than $30,000 a year. Just about every page of their recently published e-book, Your Retirement Dream IS Possible, is graced with a beautiful photograph from their travels in Guatemala, Vietnam, Australia, China, Ecuador, Belize, Mexico, New Zealand, Bali, Thailand, and the Philippines. If some of those locales don't strike you as particularly exciting or picturesque, visit the Kaderli's website and peruse their many galleries.

How have they been able to do it? It starts with strong control over cash flow. As they write, “It is imperative to know how much you're spending, not only per year but also per day.” They're also able to live on much less than what many people would consider necessary, thanks to eliminating all debt, cutting expenses that don't provide meaningful and lasting value (including many work-related expenses), and living in areas of the world where cost of living is low (but the adventure and beauty factors are high).

I recently interviewed Akaisha and Billy to find out they were able to retire so early — and so well.

Robert BrokampApproximately how much in investable assets did you have when you first retired? When people hear you retired at age 38, I bet many expect that you were deca-millionaires or something like that.

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Akaisha and Billy Kaderli In 1991 we had close to $500,000 when we took this leap, and we can assure your readers that we were not deca-millionaires, nor did we inherit our wealth. We both are hard-working, normal people who wanted a different path than the one we were on.

Robert BrokampIn an article published in 2004, you wrote that “our net worth today is higher than when we retired, after expenses and inflation.” Is that still the case, or did the recent crash set you back?

Akaisha and Billy Kaderli Our net worth is higher today than when we retired 20 years ago, and even after 20 years of spending, our net-worth has out-paced inflation. In our book, we placed a graph showing the performance of the S&P 500 since our retirement date in 1991. Remarkably, after all that the markets have gone through, it has averaged 7.2% per year [not including dividends] since our retirement date while inflation has averaged 2.6%.

Here's a dirty little secret: Many people could do what we do, but they let fear rule their lives.

Robert BrokampIn the book, you discuss how you've tracked your expenses with a spreadsheet, and even offer a template that can be downloaded. Many people might find that intimidating, or just plain boring. Any tips for inspiring and motivating people?

Akaisha and Billy Kaderli Our track-spending spreadsheet takes less than two minutes once a day to enter the data. I [Billy] have a habit of doing this the first thing in the morning, most of the time while I am half asleep waiting for the coffee to be ready. It is a really easy and an effective tool for getting a handle on your financial outlays, and doesn't have to be boring or a burden. If you do this for 30 days it can change your life. Also, that feeling of being in complete control of your finances is a real boost to your self-confidence. That fact alone is motivational.

Robert BrokampYou provide some suggestions on how someone could retire in 10 years. The scenarios presume a person can live on what some people would consider to be very low annual expenses ($18,000 to $36,000). How realistic is that? How were you able to do it?

Akaisha and Billy Kaderli These examples are assuming that you would be starting at zero, with no retirement savings. If you already have investments, then you are that much closer to the goal and can adjust accordingly. We think these figures are very realistic, as many current retirees live on these amounts. Remember, we are referring to net dollar amounts, not a gross paycheck.

Our hope is that these illustrations will cause our readers to think about what is possible and they can plug in their own numbers.

No doubt the emphasis on consumerism in the U.S. is a major distraction. All you have to do is go to a low-cost country — Thailand, Vietnam, Mexico, Guatemala, the Philippines, or many others — to realize just how rich you really are as compared to the local population. And these people are happy, healthy, connected, and vibrant.

As we have mentioned in both of our books on retirement, the highest financial outlays in any household are what you pay for housing, transportation, taxes, and food. Make adjustments in these categories and your total for expenses will be measurably influenced.

We recently spent three months in Guatemala nestled between three volcanoes, on the shores of beautiful Lake Atitlan, and our average spending was $40 per day for the two of us, which equates to $14,600 per year. Our hotel price included daily cleaning, wi-fi, room service, cable TV, and a view. This $40-per-day average covered our memberships to the local upscale spa, eating out at restaurants, minor medical issues, and day trips to other unique villages scattered around the lake.

Robert BrokampHave you come across people who have tried to do what you're doing but their plan failed? Any common mistakes you've seen made by “fellow travelers”?

Akaisha and Billy Kaderli Yes, we have known couples who have returned to work after a few years of trying to live without a dependable paycheck coming in. What comes to mind is that these couples shared a fear of the future and/or lacked the discipline to monitor their spending. They might have felt financially “cramped” instead of feeling the freedom inherent in this lifestyle. Perhaps it was more important to keep up with the spending of their peers and maybe they felt that pressure. It would be safe to say that some continued living in vacation mode instead of adopting a new lifestyle approach. Remember, it's a lifestyle — not a vacation!

We had been self-employed or on a commission basis for so many years that for us the transition to not receiving a paycheck in retirement was not an issue.

In our opinion, these couples are sacrificing their life currency in order to make sure they have enough money in the future, when the fact of the matter is they have had enough all along. All of that being said, no doubt these are personal decisions that everyone must make for themselves.

Robert BrokampFor many Americans, the mortgage is the biggest bill. How have you managed this expense?

Akaisha and Billy Kaderli We do not have a mortgage, and eliminated all debt before retiring in 1991. We constantly recommend going into retirement with zero debt: no mortgage, no car loan, and no credit card debt, period. Then your monthly pension check, Social Security, or your net worth is yours to spend on yourself and not already promised to pay off past purchases. Why take on the burden of monthly payments which keep you trapped? Get rid of the debt and free yourself before retirement.

Robert BrokampHow do you manage health-care expenses? What has been your experience with accessing health care outside of the U.S.?

Akaisha and Billy Kaderli We have had excellent medical care outside the U.S., mostly in Mexico and in Thailand. There are no long waits or required referrals from other doctors, you are not refused service or charged more if you have a “health condition,” and you can receive an estimate for procedures before you obtain them. Besides executive physicals, blood tests, colonoscopies, and other normal procedures, we have received dental care and eye care as well. We have visited small town clinics and JCI (Joint Commission International) accredited hospitals. You walk in, ask how much it costs, and are taken care of. It really is that uncomplicated.

In our experience, all of these facilities focus on the person, and they put the word “care” back into healthcare. It is quite refreshing as compared to the States.

We also have a high deductible health-care plan for when we are in the States, which keeps our monthly health expenses low.

Robert BrokampIs there a way to “ease” or “toe-dip” into living the life that you two have?

Akaisha and Billy Kaderli We would recommend tracking your expenses and then live for two years on the annual amount you are expecting to fund your retirement. Work out the kinks before you actually let go. Then try a home exchange, or renting your place out for an extended period, which will cover your costs, and then travel to different unique and unusual places. You may not come back!

Robert BrokampDo you miss having a “normal” life?

Akaisha and Billy Kaderli To us, movement and change is normal, and we enjoy having a light footprint. Having everything scheduled out for weeks or months in advance with a series of monthly payments due freezes our creativity, and mentally weighs us down.

We have always lived life in an unconventional manner. We purchased our restaurant in 1979 with no money down before that idea became popular. Retiring at age 38 was not a mainstream idea. Putting our first book on a CD in 2005 was also not an orthodox choice. We feel grateful that we have been able to live out our dreams and share those options with others.

Robert BrokampBilly, don't you miss being in the business world and “being somebody”?

Billy I am happy with who I am today, and no, I do not miss sitting in endless meetings dealing with corporate politics. I control my destiny and that is the way I prefer it.

Robert BrokampAkaisha, how do you deal with being away from family?

Akaisha This has been difficult from time to time, especially when there have been serious illnesses. Fortunately, since we are able to choose how we spend our time, I was able to do end-of-life care for my parents when they needed it.

These days, Skype and email give us the ability to communicate regularly with family, and I visit for lengths of time each year.

Robert BrokampIsn't there a place where you just want to stop and quit this itinerant life?

Akaisha and Billy Kaderli We are still looking for that one particular place, and we have found many paradises in our search. Someday we may settle down somewhere — or not — but right now we couldn't tell you where that might be.

Robert BrokampLife isn't a continuous vacation. There's got to be a downside. What is it?

Akaisha and Billy Kaderli We don't live our lives in a vacation manner. This is a lifestyle where we shop for food in indigenous markets, don't always speak the language of the people standing right next to us, and the scenery changes around us as we move through cities and countries. We find this invigorating. If there was a downside, we'd have to say it is the visa requirements. One must always be conscious of when visas expire and how to fit that in with where we are on our journey.